Mergers & Acquisitions: What Deals Will Look Like in 2008

Check out the news on Eaton Corp today. The company plans to buy two companies--one in Europe, the other in Asia. That's exactly the type of deal making we can expect to see in the world of M and A next year.

From listening to private equity players and other experts, it's clear that CEOs are in the driver seat in the coming year and the shape of mergers and acquisitions will be far different than we've seen in the last several years. They will be smaller, mostly strategic, many global and will involve less debt.

Eaton said today it plans to buy Germany's Moeller Group for $2.23 billion. The company supplies components for commercial and residential building applications and industrial controls. Eaton also said it would tender for the shares of Phoenixtec Power Co, a company listed on the Taiwan Stock Exchange, for an estimated $565 million. Phoenixtec manufactures single and three phase un-interruptible power supply systems that are sold around the world.

The merger business was declared dead at the deepest trough of the credit crisis this past summer but we've been seeing signs of life lately, including from sovereign wealth funds interested in taking passive stakes in some of the biggest brand names in the U.S. Just yesterday, a China fund gave a capital infusion of $5 billion to Morgan Stanley in exchange for what will ultimately be a 9.9 percent stake.

Thomson Financial says merger volume hit a record $1.57 trillion in the U.S. in 2007, even with the sharp decline in deal activity when credit markets seized up.

CNBC's Maria Bartiromo spoke with Carlyle Group co-founder David Rubenstein (see video) who says he sees private equity activity picking up again in 2008 and while the types of deals will change, the opportunities could be big.

Rubenstein said on Wednesday's "Closing Bell" that Carlyle has completed seven of the eight deals it was working during the credit crunch and the eighth is also expected to close. He expects deals to pick up in 2008 as the credit market comes back.

"It's not as if we've gone away and gone to sleep. We're tending to the companies that we own and also looking at some attractive new markets," Rubenstein said.

Rubenstein said he is looking at opportunities in emerging markets, including China, India, Russia, Brazil and South Africa. What kind of deals will private equity do?

"We'll probably put a lot more equity in. The debt terms will be less favorable, and prices for deals will probably be a little bit lower," says Rubenstein, adding the best deals are done in times of uncertainty.

He said his firm will be as active overseas as it will be in the U.S. next year, and the industries that are attractive include energy, health care and financial services, with the U.S. financial services industry particularly attractive. (By the way, it was Rubenstein who bought a copy of the Magna Carta at Sotheby's this week for $21.3 million and plans to keep it at the National Archives in Washington.)

Goldman Sachs CFO David Viniar also made encouraging comments about merger activity this week. On Tuesday, he told reporters that the firm sees strong interest in strategic deals by CEOs. Whether those deals are made depends on the economy.

"I think there will be lbos in 2008 and there will be plenty of them. I don't think we'll see the mega public to privates we saw in 2007 for awhile, given the less robust leveraged finance market," Viniar said.